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Pethealth Inc. Announces Record Annual Revenue of $37,427,000 and Profit of $4,150,000 and Its Full Results for the Year and Quarter Ended December 31, 2012

OAKVILLE, ONTARIO--(Marketwire - March 6, 2013) - Pethealth Inc. (TSX:PTZ) ("Pethealth" or "the Company") today announced its financial results for the year and quarter ended December 31, 2012.

For the year ended

For the quarter ended

($'000 except for per share figures)

Dec 31
2012

Dec 31
2011

Change
%

Dec 31
2012

Dec 31
2011

Change
%

Revenue

37,427

33,204

13

%

9,413

8,758

7

%

EBITDA(1)

5,212

5,091

2

%

982

1,491

(34

%)

Profit before taxes

2,402

3,259

(26

%)

202

1,023

(80

%)

Profit after taxes

4,150

2,827

47

%

575

906

(37

%)

Basic earnings per share

0.11

0.07

57

%

0.02

0.03

(33

%)

Fully diluted earnings per share

0.09

0.06

50

%

0.02

0.02

-

(1) EBITDA, a non IFRS accounting measure, is profit before amortisation and depreciation, interest and income taxes.

"I am pleased to present our Q4 and full results for 2012 where record revenues were achieved," said Mark Warren, President and Chief Executive Officer of Pethealth. "Sales of core policies achieved record levels every month during 2012 on a year on year basis and indeed policy growth has accelerated over the first two months of 2013. The requirement to expense acquisition costs in the quarter where policies are acquired creates a decline in cash flow from our insurance operations despite the overall positive impact especially when growth accelerates. In the longer term cash flow from these sales will rise significantly. Our non-insurance business continues to grow and this growth looks set to continue. We also expect to see rationalisation in the key markets in which we operate with some participants looking to exit over the course of 2013 providing us with potential acquisition opportunities."

Full year consolidated results:

Consolidated revenue increased by 13% to a record $37.4 million for the year which was the aggregate of a 2% growth in insurance segment revenues and a 35% increase in the Company's non-insurance segment revenues. The positive results from the insurance segment resulted from 4% growth in the U.S. insurance core commission revenues which were partially offset by a decline in insurance revenues both in the U.K. and Canada. Growth in non-insurance segment revenues is attributed to (i) the increase in the number of microchips sold coupled with increased pricing,(ii) an increase in the cross selling of products and services to the 24PetWatch database,(iii) an increase in sales through the PetangoStore.com and (iv) an increase in data publishing revenue.

Although consolidated revenues increased by 13%, consolidated profit before taxes was impacted by (i) the acceleration of the investment in organic growth in its insurance segment through the expansion of its 24PetWatch gift of insurance program in North America and through increased exposure on and sales completed through insurance aggregator websites the United Kingdom. The impact of these marketing expenses on income is a reflection of the accounting treatment applied to organic growth where the costs to acquire a new policyholder are expensed as incurred even though new insurance policies represent long-term recurring monthly revenues over the policies life, and (ii) a significant increase in amortisation and depreciation expense as a result of the deployment of the Company's internal ERP systems in Q1, 2012 and the deployment of the first phase of PetPoint Enterprise, the Company's first paid version of its cloud based animal welfare management system, in Q3 2012. The impact of the investment in insurance segment organic growth and the increased amortisation and depreciation expenses was partially offset by a significant reduction in the operating loss before taxes of its non-insurance operations.

Consolidated EBITDA increased by 2% to $5.2 million as the Company's non-insurance business generated its first full year of positive EBITDA at $746,000 vs. an EBITDA loss of ($523,000) in 2011. EBITDA for the Company's insurance business decreased by 20% to $4.47 million directly related to the Company's accelerated investment in organic insurance growth.

Consolidated profit after taxes increased by 47% to $4.15 million. In addition to those factors impacting the consolidated profit before taxes, the increase in profits after tax was also impacted by the recognition in the year of a deferred income tax asset associated with prior period operating losses in the Company's U.S. operations of $2.2 million.

Fourth Quarter consolidated results:

Consolidated revenue increased by 7% to $9.4 million compared to the same period in the prior year. Consolidated revenue growth was the aggregate of a 3% decrease in the insurance segment revenues and the 30% increase in the Company's non-insurance segment revenues. With the exception of an increase in data publishing revenue, the factors influencing both the insurance and non-insurance segment for the year as a whole were consistent with those impacting the fourth quarter.

For the quarter, profit before taxes decreased by 80% as a result of (i) the Company's increased investment in organic U.S. and U.K. insurance policyholder growth, (ii) a reduction in insurance company profit share and (iii) increased amortisation expenses related to the deployment of both its internal ERP systems and the first phase of PetPoint Enterprise during 2012. Consolidated EBITDA decreased by 34% to 982,000.

Consolidated profit after tax decreased by 37% for the quarter as the decrease in consolidated profits before taxes was moderated by the recognition in the quarter of a deferred income tax asset associated with prior period operating losses in the Company's U.S. operations of $654,000. While the Company determined at June 30 that it had a total tax asset available of approximately $2.2 million to recognize for 2012, under IFRS, the Company was required to split the recognition of the asset over the last three quarters of the year.

Insurance segment results:

For the year ended

For the quarter ended

($'000)

Dec 31
2012

Dec 31
2011

Change
%

Dec 31
2012

Dec 31
2011

Change
%

Revenue

22,722

22,278

2

%

5,674

5,879

(3

%)

EBITDA(1)

4,466

5,614

(20

%)

858

1,485

(42

%)

Profit before taxes

3,243

4,890

(34

%)

568

1,309

(57

%)

Profit after taxes

5,173

4,511

15

%

1,012

1,245

(19

%)

(1) EBITDA, a non IFRS accounting measure, is profit before amortisation and depreciation, interest and income taxes.

The insurance segment results were influenced by the following:

Full year 2012

A 4% increase in US core commission revenues driven in large part by the Company's accelerated investment its 24PetWatch gift of insurance program which is distributed through PetPoint to pet adopters adopting dogs and cats through the U.S. animal welfare community. During the year, an additional 71,827 24PetWatch gift policies were issued at a total incremental cost of $669,000, a 41% increase vs. the prior year.

A 5% decline in UK core commission revenues. The Company continued to accelerate its investment in new Policyholder acquisition in the UK principally through its on-going engagement of aggregator websites as a source for new policy acquisition. During the year, the average policy count increased by 12% while the average premium per policy declined by 16%. While initially resulting in a decline in U.K. core commissions, the less expensive, less coverage policies are expected to have a positive impact on the loss ratios. During the year, an additional $319,000 was invested in the one-time payments made to aggregator sites upon successful policy acquisition compared to that invested last year.

The U.S. and the U.K. core calendar year loss ratios for policies underwritten by Praetorian and QBE (Europe), in aggregate, were 50% for 2012 as compared to 49.4% for 2011. As a result, $0 was recorded in the current year with respect to the Company's participation in its programs underwriting results as compared to $124,000 in the prior year.

A 52% increase in amortization related primarily to the deployment of the Company's internal ERP system in April 2012.

The recognition of a deferred tax asset of $2.2-million related to the Company's U.S. operations.

Fourth quarter

The Company's investment in its organic insurance growth continued to accelerate in the fourth quarter where marketing costs of $651,000 were expensed related to its 24PetWatch gift program in North America and $203,000 were expensed related to one-time fees paid to U.K. aggregators upon the successful addition of a new policyholders compared to an aggregate of $708,000 expensed in Q4 2011 for these two programs. Other factors influencing the quarterly results were similar to those influencing the year as a whole.

Non-insurance segment results:

For the year ended

For the quarter ended

($'000)

Dec 31
2012

Dec 31
2011

Change
%

Dec 31
2012

Dec 31
2011

Change
%

Revenue

14,705

10,926

35

%

3,739

2,879

30

%

EBITDA(1)

746

(523

)

-

124

6

1,967

%

Profit/(loss) before taxes

(841

)

(1,631

)

48

%

(366

)

(286

)

(28

%)

Profit/(loss) after taxes

(1,023

)

(1,684

)

39

%

(437

)

(339

)

(29

%)

(1) EBITDA, a non IFRS accounting measure, is profit before amortisation and depreciation, interest and income taxes.

The non-insurance results consist of aggregate growth in the following:

Full year 2012

The Company's continued expanded reach with the North American animal welfare community. PetPoint had been licensed by 1,955 animal welfare organisations by December 31, 2012, an increase of 10% from those licensed at December 31, 2011 while 2.34 million intakes (animals entering the welfare organisations) and 973,000 adoptions were completed through PetPoint, an increase in intakes of 4% and adoptions of 9%. As of December 31, 2012, 87 animal welfare organisations were paying to licence PetPoint, the Company's cloud-based animal welfare management system.

The continued expansion of its microchip and database products and services. The Company sold, in aggregate, 1.5 million RFID microchips in the United States, Canada and the United Kingdom, 14% increase in the number of microchips sold. Revenue from microchip sales increased 24% to $9.5 million. As a percentage of total non-insurance revenue, microchip revenue fell to 66% from 71%. Total individual pet and pet owner registrations in the 24PetWatch database surpassed 6.6 million by December 31, 2012, representing an increase of over 1.3 million registered cats and dogs, or 26%. The sale of ancillary products and services to the 24PetWatch database of pet owners accounted for $2.57 million in revenue, a 30% increase.

The expanded reach of Petango.com which, according to comScore.com, attracted more than 11 million unique visitors and generated 268 million page views and the increased sales of both Business to Business and Business to Consumer sales via thepetangostore.com which totalled, in aggregate, $1.43 million, a 62% increase.

The increase in data publishing revenue increased significantly as a result of a data report agreement with Best Friends completed in the first quarter. Under the terms of the agreement, the Company provided Best Friends with national, regional and state reports on animal intakes and outcomes from 2009 through 2011 in exchange for $435,000. Under the terms of the agreement, Best Friends has an option until March 31, 2013 for 2012 reports at an additional price of approximately USD $250,000.

Fourth quarter

The fourth quarter, with the exception of data publishing, was influenced by the same factors as the year as a whole as:

538,598 intakes (animals entering the welfare organisations) and 263,196 adoptions were completed through PetPoint, an increase in intakes of 1% and adoptions of 6%;

The Company sold, in aggregate, 382,000 RFID microchips in the United States, Canada and the United Kingdom, a 16% increase. Revenue from microchip sales increased 18% to $2.3 million. As a percentage of total non-insurance revenue, microchip revenue fell to 63% from 68%. The sale of ancillary products and services to the 24PetWatch database of pet owners accounted for $702,000 in revenue, a 32% increase;

According to comScore.com, Petango.com attracted more than 2.79 million unique visitors and generated 44 million page views;

Sales via thepetangostore.com totalled $477,000, an 84% increase.

Normal Course Issuer Bid

On September 20, 2012, the Company's Board of Directors announced its intention to make a Normal Course Issuer Bid to repurchase up to 1,669,000 of its common shares. Repurchases commenced on November 08, 2012 and will terminate no later than September 23, 2013.

The Company appointed Industrial Alliance Securities Inc. to purchase the shares on its behalf. As at December 31, 2012, 232,000 common shares had been repurchased at an average price of approximately $0.82 per common share, for an aggregate of $192,000 in cash.

Conference call

The Company is hosting an investor conference call on Thursday, March 7, 2013, at 10:30AM (EST) which can be accessed at 1-800-355-4959 or on-line at www.pethealthinc.com. For those unable to participate, a replay of the call will be available shortly after the call concludes on the Company's website at www.pethealthinc.com.

About Pethealth

For detailed financial statements for the year and quarter ended December 31, 2012, including Management's Discussion and Analysis, please refer to the Company's website or SEDAR at www.sedar.com after March 6, 2012.

Pethealth is North America's second largest provider of medical insurance for dogs and cats to pet owners, operating in the United States, Canada and the United Kingdom. In addition, the Company is the leading provider of management software to North American animal welfare organisations through its SaaS-based application and is the leading provider of pet related database management services to the North American companion animal industry. Pethealth offers a unique range of products and services for veterinarians, shelters and pet owners through a number of wholly owned subsidiaries using a range of brand names including PetCare, 24PetWatch, Pet Protect, Petpals Direct, ShelterCare, PetPoint, Petango.com and ThePetangoStore.com.

Pethealth is based in Oakville, Ontario. To find out more about Pethealth, visit the web site at www.pethealthinc.com.

Forward-Looking Statements

This press release contains information that is forward-looking information within the meaning of applicable securities laws. In some cases, forward-looking information can be identified by the use of terms such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "intend", "estimate", "predict", "potential", "continue" or the negative of these terms or other similar expressions concerning matters that are not historical facts.

Forward-looking information by its nature necessarily involves risks and uncertainties including, without limitation, the difficulty of predicting the current regulatory and supervisory environment, the timing and conditions to obtaining any regulatory approval, reliance on insurance underwriters for pet insurance policies, market acceptance and demand for existing and new products and services, including PetPoint and EVE Software and the 24PetWatch microchip program, the Company's ability to maintain and service new and existing customers, the protection of intellectual property associated with its products and services, the impact of competition generally and new competitive products, currency and foreign exchange fluctuations, risks associated with the Company's customer care solutions facility, and related risks and uncertainties. Additional risks and uncertainties affecting the Company can be found in the Company's Annual Information Form available on SEDAR at www.sedar.com. If any of these risks or uncertainties were to materialize or if the factors and assumptions underlying the forward-looking information were to prove incorrect, actual results could vary materially from those that are expressed or implied by the forward-looking information contained herein. The Company disclaims any intention or obligation, other than those required by security laws, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.